- Natural Language Processing data shows that Facebook has been the least forthcoming this earnings season.
- Facebook management’s use of deceptive language has skyrocketed over the past quarter.
- The data suggests the firm either doesn’t know or doesn’t want to talk about some aspects of its business.
The FAANGs – Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Google parent Alphabet (NASDAQ:GOOGL) – have been a controversial bunch this year. Analysts are starting to sound alarm bells over the group’s meteoric rise, with some saying the tech bubble will burst as early as 2020.
Worries about a FAANG collapse have caused many to re-evaluate which of the five market darlings actually belong in a long-term portfolio. This is a difficult task considering each one is promising to keep delivering impressive gains over the long term. While fundamentals play a critical role in stock-picking, trust in management is an equally—if not larger— factor in deciding where to invest.
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But trustworthiness and transparency are difficult to gauge. At least it was, until Artificial Intelligence stepped in.
Making Text Quantifiable
Amenity Analytics uses natural language processing (NLP) and machine learning to analyze earnings call transcripts and turn dialogue into data. The firm’s platform measures the level of ‘deception’ found in each quarterly report to determine how forthcoming the results actually are.
So which of the FAANGs can be trusted based on what they said in Q3? The results were pretty even across the board apart from one exception: Facebook stock.
Not only was Facebook’s deception score double its FAANG stock peers, but importantly the firm was flagged for more deceptive markers in Q3 than in any other quarter.
Facebook Stock is Least Trustworthy
Deception scores on their own aren’t gospel. Much of how a company scores depends on how a particular CEO and their team speaks. If they often use euphemisms or jargon, their score would be higher. That’s why Amenity measures changes in deception scores as well— that figure takes into account whether the amount of deceptive language increased or decreased over a given time period.
In Facebook stock’s case, not only is the number of deceptive phrases high, but that figure rose substantially in Q3 as well.
Facebook’s Q3 results showed 14 negative deceptive phrases. To put that into perspective, that’s more than the number of deceptive events in Facebook’s Q1 and Q2 quarters combined.
The deceptive phrases Amenity flagged were things that Mark Zuckerberg and his team said that suggest they either don’t know or don’t want to talk about a particular issue. Phrases that came up in Q3 as deceptive included, “we at least can disagree,” “don’t think we have any new stats,” and the most common phrase (flagged three times) “it’s early days.”
The majority of Facebook’s deceptive language was used when talking about revenue and notably, Q3 marked FB’s highest deception score since 2015.
Facebook’s Deception Score Tops the Pack
By contrast, the management team at Alphabet had only one deceptive phrase in Q3, Apple had five and Amazon and Netflix each had seven.
What’s more, Facebook wasn’t just the worst of the FAANGs— the firm was one of the worst on the market as well. Of all firms with a market cap over $50 billion, Facebook had the 15th highest deception score.
Some of Facebook’s deception score can be explained by the firm’s precarious position right now. Mark Zuckerberg and his team have been under the microscope over the past few months as the 2020 election cycle ramps up. Many question whether Facebook should take more responsibility over the quality of the information it feeds to users. Some even accuse Facebook of pushing particular candidates’ agendas.
Those kinds of scandals can lead to uncomfortable earnings calls, difficult questions, and uncertain answers. Still, investors who are uncertain about the fate of the FAANGs are looking for clarity and transparency from management teams and the NLP data suggests Facebook isn’t delivering.
As of this writing, Laura Hoy was long FB, AAPL, NFLX and AMZN.
Last modified: September 23, 2020 1:21 PM